News Item

Harvard’s “Best and Brightest” Aided Russia’s Economic Ruin

January 1, 2000

A 1992 front-page story in the Boston Globe (9/22/92), \”Red Square Turns to Crimson,\” announced proudly that Harvard experts were advising Russia in its conversion to capitalism. \”Privatization stands as the centerpiece of Russia\’s economic-reform program,\” wrote the Globe. It was an equation the \”best and brightest\” from Harvard would drum home again and again to the media: privatization equals reform. The piece quoted the head of the Harvard Russia project, Andrei Shleifer: \”Once you work with Russians for two weeks, you become a free-market enthusiast.\”

As more becomes known about the laundering of Russian money in Western banks, many in the United States will likely try to hide behind stories of faraway organized crime. But U.S. policy toward Russia has contributed to that country\’s sorry conditions–with the Harvard Institute for International Development\’s Russia project (HIID) playing a major role.

Among those under investigation for criminal activity in both the west and Russia is longtime Yeltsin aide Anatoly B. Chubais, the chief architect of Russia\’s economic \”reforms.\” In the mid-\’90s, Chubais and his clique of political and financial power brokers, known as the \”Chubais Clan,\” were the darlings of the U.S. Treasury and international financial institutions–and of the U.S. establishment press.

HIID, together with the Chubais \”dream team,\” as the Treasury Department\’s Lawrence H. Summers called it, presided over Russia\’s economic \”reforms,\” many of them U.S.-funded, including privatization. But the so-called reforms were more about wealth confiscation than wealth creation. Privatization, which had substantial input from U.S.-paid Harvard advisors, fostered the concentration of property in a few Russian hands and opened the door to widespread corruption and funneling of monies to Western banks.

Chubais was briefly on the HIID payroll, and he is currently head of Russia\’s electricity monopoly. In 1995, the Economist magazine (4/8/95) projected that Chubais would be president of Russia by 2010. But by 1998, the New York Times (3/24/98) conceded that he \”may be the most despised man in Russia\” since \”his early efforts at privatization were widely viewed as vast federal gifts to inside operators at the expense of millions of workers who got nothing but promises they cannot redeem.\”

HIID was in the unique position of recommending U.S. aid polices in support of market reforms while being a chief recipient of the aid–as well as overseeing other aid contractors, some of whom were HIID\’s competitors. HIID, Chubais and their associates played a major role in promoting themselves and the \”reforms\” in the Western media; for example in a 1993 Washington Post piece (5/7/93), Shleifer complained that the Clinton administration was allowing privatization efforts to \”fall through the cracks.\”

A New York Times \”Economic Scene\” column (4/20/95) led thus:

Is Russia poised for economic takeoff? After three years of on-again, off-again reforms and with the Pyrrhic military victory in Chechnya still fresh in the news, skepticism comes easily. But little by little, wary analysts are abandoning their caution. \”Russia is a real market economy now,\” says Andrei Shleifer, an economist at Harvard who has advised the Russian government on privatization.
Some of those associated with HIID allegedly profited directly from it. HIID helped established Russia\’s Federal Commission on Securities, roughly the equivalent of the SEC in the U.S. It was officially established by Yeltsin proclamation, and funded by the U.S. government through institutions run by those around the Harvard-Chubais coterie. The first mutual fund licensed by the Commission was headed by Elizabeth Hebert, who was the girlfriend of Jonathan Hay, Harvard\’s manager and point man in Moscow.

Harvard appears to have benefited from HIID\’s Russia connection. Harvard Management Company, the university\’s endowment fund, was allowed to participate in choice auctions of Russian government property, despite the fact that foreign investors were supposed to be excluded under auction rules.

In 1996, the GAO found that U.S. oversight over Harvard was \”lax,\” and, following allegations in 1997 that Shleifer and the other Harvard principals used their positions and inside knowledge as advisers to profit from investments in Russia, the U.S. government cancelled the last $14 million earmarked for Harvard. Shleifer, now under investigation by the Justice Department, was dismissed by HIID. (Still, Shleifer, who is a protégé of Treasury Secretary Summers, received the Clark Award from the American Economic Association this year, an award that Summers, who has been the architect of economic policy toward Russia, received in 1993. The association\’s president-elect, Dale Jorgenson, said Shleifer\’s scandal \”was not even mentioned\” in their considerations–New York Times, 4/26/99.)

In Privatizing Russia, co-authored by Shleifer with Chubais associate Maxim Boycko, they acknowledge that \”aid can change the political equilibrium–by explicitly helping free-market reformers to defeat their opponents.\” Richard Morningstar, U.S. aid coordinator for the former Soviet Union, concurred (Collision and Collusion, Wedel): \”If we hadn\’t been there to provide funding to Chubais, could we have won the battle to carry out privatization? Probably not. When you\’re talking about a few hundred million dollars, you\’re not going to change the country, but you can provide targeted assistance to help Chubais.\”

Leonid Krutakov, Russian investigative reporter for the publication Moskovsky Komsolets noted that throughout the Yeltsin years, \”both the foreign and domestic press created a central deception–a false set of \’alternatives.\’ The idea was pushed on both sides of that Atlantic that if you didn\’t support Chubais, you were supporting the communists.\” Krutakov, who has broken many of the scandal stories, noted (eXile, 10/23/99):

Obviously it\’s difficult to come into a country blind and just evaluate the situation instantly. You draw your conclusions from people you meet. Western reporters came in and talked to Chubais, and Chubais tossed words around like \”market,\” \”profit,\” \”openness\”–all the right words. And this was the only view point of view they heard that made sense, as far as they knew.

Janine R. Wedel is associate professor at the University of Pittsburgh and is the author of Collision and Collusion: The Strange Case of Western Aid to Eastern Europe. Think Tank Monitor is a project of FAIR and the Institute for Public Accuracy (www.accuracy.org).